Impact of a DRG-based hospital financing system on quality and outcomes of care in Italy.
OBJECTIVE: To examine potential changes in quality of care associated with a recent financing system implementation in Italy: in 1995, hospital financing reform implemented in Italy included the introduction of a DRG-based hospital financing system with the goals of controlling the growth of hospital costs and making hospitals more accountable for their productivity. DATA SOURCES: Hospital discharge abstract data from 1993 through 1996 for all hospitals (N=32) in the Friuli-Venezia-Giulia region of Italy. Regional population data were used to calculate rates. STUDY DESIGN: Changes between 1993 and 1996 in hospital admissions, length of stay, mortality rates, severity of illness, and readmission rates were studied for nine common medical and surgical conditions: appendicitis, diabetes mellitus, colorectal cancer, cholecystitis, bronchitis/chronic obstructive pulmonary disease (COPD), bacterial pneumonia, coronary artery disease, cerebrovascular disease, and hip fracture. PRINCIPAL FINDINGS: The total number of ordinary hospital admissions decreased from 244,581 to 204,054 between 1993 and 1996, a population-based decrease of 17.3 percent (p<.001). The mean length of stay decreased from 9.1 days to 8.8 days, resulting in a 21.1 percent decrease in hospital bed days (p<.001). Day hospital use increased sevenfold from 16,871 encounters in 1993 to 108,517 encounters in 1996. The largest decrease in hospital admissions among study conditions was a 41 percent decrease for diabetes (from 2.25 per 1,000 in 1993 to 1.31 in 1996, p<.001). For eight of the nine conditions, severity of illness increased. Differences between severity-adjusted expected and observed in-hospital mortality rates were small. CONCLUSIONS: Observed trends showed a decrease in ordinary hospital admissions, an increase in day hospital admissions, and a greater severity of illness among hospitalized patients. There was little or no change in mortality and readmission rates. Administrative data can be used to track changes in patterns of care and to identify potential quality problems deserving further review. (+info)
The effects of group size and group economic factors on collaboration: a study of the financial performance of rural hospitals in consortia.
STUDY QUESTIONS: To determine factors that distinguish effective rural hospital consortia from ineffective ones in terms of their ability to improve members' financial performance. Two questions in particular were addressed: (1) Do large consortia have a greater collective impact on their members? (2) Does a consortium's economic environment determine the degree of collective impact on members? DATA SOURCES AND STUDY SETTING: Based on the hospital survey conducted during February 1992 by the Robert Wood Johnson Hospital-Based Rural Health Care project of rural hospital consortia. The survey data were augmented with data from Medicare Cost Reports (1985-1991), AHA Annual Surveys (1985-1991), and other secondary data. STUDY DESIGN: Dependent variables were total operating profit, cost per adjusted admission, and revenue per adjusted admission. Control variables included degree of group formalization, degree of inequality of resources among members (group asymmetry), affiliation with other consortium group(s), individual economic environment, common hospital characteristics (bed size, ownership type, system affiliation, case mix, etc.), year (1985-1991), and census region dummies. PRINCIPAL FINDINGS: All dependent variables have a curvilinear association with group size. The optimum group size is somewhere in the neighborhood of 45. This reveals the benefits of collective action (i.e., scale economies and/or synergy effects) and the issue of complexity as group size increases. Across analyses, no strong evidence exists of group economic environment impacts, and the environmental influences come mainly from the local economy rather than from the group economy. CONCLUSION: There may be some success stories of collaboration among hospitals in consortia, and consortium effects vary across different collaborations. RELEVANCE/IMPACT: When studying consortia, it makes sense to develop a typology of groups based on some performance indicators. The results of this study imply that government, rural communities, and consortium staff and steering committees should forge the consortium concept by expanding membership in order to gain greater financial benefits for individual hospitals. (+info)
Financial and organizational determinants of hospital diversification into subacute care.
OBJECTIVE: To examine the financial, market, and organizational determinants of hospital diversification into subacute inpatient care by acute care hospitals in order to guide hospital managers in undertaking such diversification efforts. STUDY SETTING: All nongovernment, general, acute care, community hospitals that were operating during the years 1985 through 1991 (3,986 hospitals in total). DATA SOURCES: Cross-sectional, time-series data were drawn from the American Hospital Association's (AHA) Annual Survey of Hospitals, the Health Care Financing Administration's (HCFA) Medicare Cost Reports, a latitude and longitude listing for all community hospital addresses, and the Area Resource File (ARF) published in 1992, which provides county level environmental variables. STUDY DESIGN: The study is longitudinal, enabling the specification of temporal patterns in conversion, causal inferences, and the treatment of right-censoring problems. The unit of analysis is the individual hospital. KEY FINDINGS: Significant differences were found in the average level of subacute care offered by investor-owned versus tax-exempt hospitals. After controlling for selection bias, financial performance, risk, size, occupancy, and other variables, IO hospitals offered 31.3 percent less subacute care than did NFP hospitals. Financial performance and risk are predictors of IO hospitals' diversification into subacute care, but not of NFP hospitals' activities in this market. Resource availability appears to expedite expansion into subacute care for both types of hospitals. CONCLUSIONS: Investment criteria and strategy differ between investor-owned and tax-exempt hospitals. (+info)
Analysis of the rationale for, and consequences of, nonprofit and for-profit ownership conversions.
OBJECTIVES: To examine percursors to private hospitals conversion, both from nonprofit status to for-profit status and from for-profit to nonprofit status, as well as the effect of hospital conversions on hospital profitability, efficiency, staffing, and the probability of closure. DATA SOURCES: The Health Care Financing Administration's Medicare Cost Reports and the American Hospital Association's Annual Survey of Hospitals. STUDY DESIGN: Bivariate and multivariate analyses comparing conversion hospitals to nonconversion hospitals over time were conducted. DATA EXTRACTION METHODS: The study sample consisted of all private acute care hospital conversions that occurred from 1989 through 1992. PRINCIPAL FINDINGS: Hospitals that converted had significantly lower profit margins prior to converting than did nonconversion hospitals. This was particularly true for nonprofit to for-profit conversions. After converting, both nonprofit and for-profit hospitals significantly improved their profitability. Nonprofit to for-profit hospital conversions were associated with a decrease in the ratio of staff to patients. No association was found between for-profit to nonprofit conversion and staff-to-patient ratios. The difference seems partially attributed to the fact that nonprofit hospitals that converted had higher staff ratios than the industry average. For-profit to nonprofit hospital conversions were associated with an increase in the ratio of registered nurses to patients and administrators to patients, despite the fact that nonprofit and for-profit hospitals did not differ in these ratios. CONCLUSIONS: The improvement in financial performance following hospital conversions may be a benefit to the community that policymakers want to consider when regulating hospital conversions. (+info)
Health reform and hospital financing in Georgia.
AIM: To analyze hospital financing and delivery of inpatient services, financial requirements of the hospitals, and their ability to meet these requirements were determined. METHODS: Data on financial performance of 41 hospitals were collected using a standardized questionnaire. Patient survey, group discussions with hospital administrators, and interviews with policy-makers were also used. RESULTS: Thirty-three hospitals were unable to recover full costs, and 29 were unable to recover full costs excluding capital consumption cost. Cost recovery rate (CRR) of full costs for 14 hospitals was less than 70% and CRR of full costs minus capital consumption costs was less than 70% for 8 hospitals. Collected actual revenues comprised 75.2% of hospitals' full costs. Mean CRR for the sample was 78.6+25.2%. General and long-term hospitals recover 64.8% of their costs, but pediatric and specialized hospitals collected revenues to cover full costs excluding the capital consumption costs. Medium-sized hospitals recovered only 63. 5% of full costs. The hospitals operated with low efficiency, low occupancy rates (31%), and excessive staffing (1.5 physicians per occupied bed). They employed salary equalization policies, which increased the share of fixed costs, perpetuated the oversupply of medical personnel, and yielded low pays. Hospitals charged in excess of their officially accounted costs but, and due to the low collection rates, cost recovery rates were below the officially accounted costs (87.6%). CONCLUSIONS: Low official reimbursement rates and patient unawareness of official hospital costs creates conducive environment for shifting major turnover of the real hospital costs to the patients, resulting in illegal patients charging. (+info)
Paying a premium: how patient complexity affects costs and profit margins.
OBJECTIVE AND BACKGROUND: Tertiary medical centers continue to be under extreme pressure to deliver high-complexity care, but paradoxically there is considerable pressure within these institutions to reduce their emphasis on tertiary care and refocus their efforts to develop a more community-like practice. The genesis of this pressure is the perceived profitability of routine surgical activity when compared with more complex care. The purpose of this study is to assess how the total cost and profit (loss) margin can vary for an entire trauma service. The authors also evaluate payments for specific trauma-related diagnostic-related groups (DRGs) and analyze how hospital margins were affected based on mortality outcome. MATERIALS AND METHODS: The authors analyzed the actual cost of all trauma discharges (n = 692) at their level I trauma center for fiscal year 1997. Data were obtained from the trauma registry and the hospital cost accounting system. Total cost was defined as the sum of the variable, fixed, and indirect costs associated with each patient. Margin was defined as expected payments minus total cost. The entire population and all DRGs with 10 or more patients were stratified based on survival outcome, Injury Severity Score, insurance status, and length of stay. The mean total costs for survivors and nonsurvivors within these various categories and their margins were evaluated. RESULTS: The profit margin on nonsurvivors was $5,898 greater than for survivors, even though the mean total cost for nonsurvivors was $28,821 greater. Within the fixed fee arrangement, approximately 44% of transfers had a negative margin. Both survivors and nonsurvivors become increasingly profitable out to 20 days and subsequently become unprofitable beyond 21 days, but nonsurvivors were more profitable than survivors. CONCLUSIONS: There is a wide variance in both the costs and margins within trauma-related DRGs. The DRG payment system disproportionately reimburses providers for nonsurvivors, even though on average they are more costly. Because payers are likely to engage in portfolio management, patients can be transferred between hospitals based on the contractual relationship between the payer and the provider. This payment system potentially allows payers to act strategically, sending relatively low-cost patients to hospitals where they use fee-for-service reimbursement and high-cost patients to hospitals where their reimbursement is contractually capped. Although specific to the authors' trauma center and its payer mix, these data demonstrate the profitability of maintaining a level I trauma center and preserving the mission of delivering care to the severely injured. (+info)
The fall of the house of AHERF: the Allegheny bankruptcy.
The $1.3 billion bankruptcy of the Allegheny Health, Education, and Research Foundation (AHERF) in July 1998 was the nation's largest nonprofit health care failure. Many actors and factors were responsible for AHERF's demise. The system embarked on an ambitious strategy of horizontal and vertical integration just as reimbursement from major payers dramatically contracted, leaving AHERF overly exposed. Hospital and physician acquisitions increased the system's debt and competed for capital, which sapped the stronger institutions and led to massive internal cash transfers. Management failed to exercise due diligence in many of these acquisitions. Several external oversight mechanisms, ranging from AHERF's board to its accountants and auditors to the bond market, also failed to protect these community assets. (+info)
Capital finance and ownership conversions in health care.
This paper analyzes the for-profit transformation of health care, with emphasis on Internet start-ups, physician practice management firms, insurance plans, and hospitals at various stages in the industry life cycle. Venture capital, conglomerate diversification, publicly traded equity, convertible bonds, retained earnings, and taxable corporate debt come with forms of financial accountability that are distinct from those inherent in the capital sources available to nonprofit organizations. The pattern of for-profit conversions varies across health sectors, parallel with the relative advantages and disadvantages of for-profit and nonprofit capital sources in those sectors. (+info)